BIR Ruling 046-2000

Revenue or income from trade, business or other activity, the conduct of which is not related to the exercise or performance of religious, educational and charitable purposes or functions shall be subject to internal revenue taxes when the same is not actually, directly or exclusively used for the intended purposes. (BIR Ruling 046-2000)

Section 30 (1) of the 1997 Tax Code listed government educational institution as one of the organizations exempt from income tax. Section 30 of the Tax Code pertains to various non-stock, non-profit organizations whose income/revenues received as such are exempt from tax imposed under Title II of the same Tax Code. Paragraph 3, Section 4 Article XIV of the 1987 Philippine Constitution categorically exempts from taxes and duties all revenues and assets of non-stock, non-profit educational institutions., which are actually, directly and exclusively used for educational purposes. The exemption is limited to a non-stock, non-profit educational institution only.

As a non-stock, non-profit government educational institution, U.P. falls squarely within the purview of the above constitutional provision; hence, it is eligible to avail of the tax exemption granted thereat with respect to its revenues derived in pursuance of its educational purpose and when such revenues are actually, directly and exclusively used therefor. Conversely, the revenue or income from trade, business or other activity, the conduct of which is not related to the exercise or performance by such educational institutions of their educational purposes or functions shall be subject to internal revenue taxes when the same is not actually, directly or exclusively used for the intended purpose/s. Department Order No. 149-95 dated November 24, 1995 amending Finance Department Order No. 137-87 provides that interest income from Philippine currency bank deposits and yield from deposit substitute instruments used actually, directly and exclusively in pursuance of the educational purpose for which an educational institution was created, are exempt from the 20% final withholding tax imposed Section 27(D)(1) of the Tax Code of 1997, subject to compliance with the conditions that as a tax-exempt educational institution, the University shall, on an annual basis, submit to the Revenue District Office concerned an annual information return and duly audited financial statement.

Likewise, pursuant to Section 32(B)(7)(g) of the 1997 Tax Code, gains realized by U.P. from the sale or exchange or retirement of bonds, debentures or other certificate of indebtedness with maturity of more than five (5) years, shall also be exempt from income tax. (BIR Ruling No. 046-2000 dated September 26, 2000)